A Hospital Copes With the New Order

Published: January 29, 1995

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Licensed for 1,067 beds, the hospital now maintains about 550, of which 460 are classic acute-care beds, the rest in a skilled-nursing wing where patients are monitored less. In a dramatic sign of changing medical practice, the average number of acute-care beds occupied each day here dropped to 280 in 1994, from 392 in 1991. This reflected both a reduced tendency to hospitalize people and shorter stays.

"I no longer think of myself as the C.E.O. of a hospital," said Mr. Serfling, who rose through the ranks at California Pacific over the last 20 years and seems to have transformed himself along with the fiscal environment. "Our business is providing a full range of benefits to health-care purchasers. I'm C.E.O. of an integrated health company."

In point of fact, Mr. Serfling is becoming C.E.O. of just one component of a health business. By all accounts, power is shifting toward the doctors, especially the primary-care doctors. They provide most care and are the ones who attract the customers -- the employers that buy insurance and the H.M.O.'s that are their middlemen.

In this case, a for-profit organization jointly owned by the doctor group and the hospital, called a medical services organization, is rapidly taking over many crucial tasks, both from the hospital and from the contracting H.M.O.'s. These include negotiation of the H.M.O. contracts, computerized monitoring of individual doctors' decisions in their scattered offices, approval of patient tests and surgery and the standardizing of care within the hospital.

The services organization's board of directors has six doctors and four hospital administrators. In two years the group has built a staff of about 180, filling three floors of a nearby building. Many people, including Mr. Serfling and Dr. Michael Abel, president of the doctor group, expect that eventually one chief executive will preside over a combined physician and hospital entity.

The doctor group itself includes about 250 primary care doctors and 440 specialists, said Dr. Abel, a surgeon when he is not wearing his new hat as an executive. That mix includes too many specialists, everyone agrees. The solution so far has been to let economic pressures do the winnowing; specialist incomes have declined by 10 percent to 40 percent, Dr. Abel said. "I see people retiring early, or moving out of state," he said. Entrepreneurial Spirit Big Decisions, Quickly Made

Among the doctors and within the hospital, people with an entrepreneurial bent are taking over. The combined enterprise has a corporate feel that is vastly different from the lumbering, almost medieval character of classic hospitals with their specialty-department fiefs.

Mr. Serfling said he identifies with his counterparts in nearby Silicon Valley, where rapid, high-stakes decisions amid frantic innovation are the norm. By way of example, he said on a recent afternoon, he was considering a take-it-or-leave-it offer from a leading insurer, for exclusive coverage of 40,000 people.

The offer: flat monthly fees per person in the mid-$30's range to the hospital and the $50 range to the doctors' group -- he would not divulge exact numbers -- for which they would together provide all care, from toddler checkups to heart transplants. The population to be covered includes workers and their families; rates for elderly people would be far higher.

Quite recently, such an offer would have been considered absurdly low; only a year or two back, H.M.O. payments for the hospital portion were $40 to $45 a person, Mr. Serfling said. In practice the proposed fee would amount to a 45 percent discount from the hospital's normal charges, he said. But he is also aware that H.M.O.'s have driven even stiffer bargains with other hospitals in California.

"We have this proposed revenue stream per patient," he said. "Management has to figure out how to deliver all care, run a hospital and still deliver a high-quality product."

"A lot of people think that's impossible," he said. "They're wrong, but we have to start with a clean piece of paper. That's what's so exciting."

The physicians would be accepting a sum to divide among themselves. They would also agree to keep the total number of hospital days used by those 40,000 patients below a target. If that is surpassed, then the extra expense would come out of the doctors' collective share. On the other side, if expenses are held below projections, the doctors and hospital would divide up the surplus.

Hospitals all over the country are groping their way as managed care increasingly takes hold. Some have closed or been bought by for-profit chains that aim to remold them into nodes of competitive networks. Larger hospitals are trying various strategies for building their own bottom-to-top health systems.

New York Hospital in Manhattan, for example, is buying up smaller hospitals that it hopes can feed the sickest patients to its advanced facility. The Hospital of the University of Pennsylvania hopes to secure H.M.O. contracts by buying groups of primary-care doctors in the Philadelphia region. Controlling Costs Getting Patients Is the Easy Part